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IGL : Bottomline up 16%
May 24, 2013

Indraprastha Gas Ltd (IGL) has announced its results for the fourth quarter of the financial year 2012-2013 (4QFY13) and FY13. The company has reported a 33.7% year on year (YoY) growth in the revenues and 15.6% YoY growth in the bottomline for the full year. Here is our analysis of the results.

Performance summary
  • The topline registered an increase of 22.4% YoY during the quarter. For full year (FY13), the sales grew by 33.7% YoY.
  • The operating profits for the quarter were up by 10.2% YoY with margins at 21.0% (versus 23.3% in 4QFY12). For FY13, the growth in the operating profits came at 19.6% YoY, with margins at 22.5% (25.2% in FY12).
  • The net profits for the quarter were up by 4.4% YoY with margins at 9.5% (11.1% in 4QFY12). For FY13, the growth in the net profits came at 15.6% YoY, with margins at 10.5% (12.2% in FY12).
  • The Board has recommended payment of dividend at the rate of 55% (i.e. Rs.5.50 per share) for the approval of members in the ensuing Annual General Meeting.

Financial summary
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Sales 7,212 8,824 22.4% 25,178 33,670 33.7%
Expenditure 5,529 6,970 26.1% 18,842 26,089 38.5%
Operating profit (EBDITA) 1,683 1,855 10.2% 6,337 7,581 19.6%
EBDITA margin (%) 23.3% 21.0%   25.2% 22.5%  
Other income 18 31 74.6% 75 129 71.7%
Interest (net) 136 125 -7.9% 479 562 17.4%
Depreciation 397 489 22.9% 1,432 1,867 30.4%
Profit before tax 1,168 1,272 8.9% 4,501 5,282 17.4%
Pretax margin (%) 16.2% 14.4%   17.9% 15.7%  
Tax 368 437 18.7% 1,437 1,741 21.2%
Profit after tax/(loss) 800 835 4.4% 3,064 3,541 15.6%
Net profit margin 11.1% 9.5%   12.2% 10.5%  
No. of shares (m)         140  
Diluted earnings per share (Rs)*         25.3  
Price to earnings ratio (x)**         11.1  
* On a trailing 12-month basis

What has driven performance in FY13?
  • The revenue growth of 22.4% YOY during the quarter was on the back on higher average realizations and around 5% YoY growth in the gas sales volumes. The higher gas costs were one of the main reasons for poor volumes. For FY13, the revenue growth came at 33.7% YoY, supported by higher average realizations and 10% YoY growth in the sales volumes. The average daily gas sales volumes for the year stood at 3.66 million standard cubic metres per day (mscmd), up from 3.33 mscmd in FY12.

  • The operating profits for the quarter grew by 10.2% YoY while margins stood at 21.0%, down from 23.3%. Despite the hike in the prices, the margins slipped down due to higher share and cost of imported gas. The raw material cost (gas cost) increased to 66.3% (as a percentage of sales) during the quarter from 63.5% in the corresponding quarter last year. For FY13, the raw material costs went up to 65.3% from 61.1% in FY12 (both as a % of sales).

    Cost break up
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Consumption of raw materials 4,577 5,850 27.8% 15,392 21,970 42.7%
    as a % of sales 63.5% 66.3%   61.1% 65.3%  
    Staff costs 131 178 36.0% 437 567 29.7%
    as a % of sales 1.8% 2.0%   1.7% 1.7%  
    Other expenditure 821 941 14.7% 3,013 3,551 17.9%
    as a % of sales 11.4% 10.7%   12.0% 10.5%  
    Total expenditure 5,529 6,970 26.1% 18,842 26,089 38.5%
    as a % of sales 76.7% 79.0%   74.8% 77.5%  

  • The net profits for the quarter grew by just 4.4%, with net profit margins declining to 9.5%, as compared to 11.1% in 4QFY12. The depreciation expenses for the quarter increased by 22.9% YoY while interest expenses declined by 7.9% YoY. For full year, the bottomline grew by 15.6% YoY with margins at 10.5%, as compared to 12.2% in FY12. The depreciation expenses for full year were up by 30.4% YoY. The decline in the net profit margins was mainly on account of higher gas costs as the share of costlier imported gas went up.

What to expect?

While IGL is one among the better placed companies in the downstream gas segment, the stock is suffering from a regulatory overhang. In April 2012, things took an adverse turn for IGL as the downstream gas market regulator Petroleum and Natural Gas Regulatory Board (PNGRB) ordered more than 60% cut in network tariffs and 59% cut in compression charges. While the company managed to dodge the regulator's order by getting Delhi High Delhi Court's judgment in its favour, the regulatory uncertainty still looms over the company's fortunes as PNGRB has moved to Supreme Court now and decision is still awaited. The next hearing on the case between the PNGRB and Indraprastha Gas Ltd is scheduled on July 16, 2013.

Apart from the regulatory factors, the higher cost of imported LNG is a matter of concern for the company. Especially because of the share of costlier imported gas is rising. At the current stock price, the stock is trading at a trailing 12 months PE ratio of 11.1 times. On account of the regulatory uncertainty, we recommend investors to avoid the stock.

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